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Merlo
Merlo, Accountant
Category: Tax
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Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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Ive been laid off for most of the year. My credit card balanced

Resolved Question:

I've been laid off for most of the year. My credit card balanced about about 40k. I'm currently in college again to get my teching certificate. I would like to know if it would be better to pay off my credit cards before the interest rates hit the high 20 percentage, with my retirement IRA / 401k or try and tough it out?
Submitted: 4 years ago.
Category: Tax
Expert:  Merlo replied 4 years ago.

HelloCustomer

 

Assuming you are under the age of 59-1/2, if you withdraw money from your IRA account or 401k account, you are automtically going to pay a 10% early withdrawal penalty. In addition, you would then owe both federal and state income taxes on the money you withdraw. And then the other consideration is the fact that you no longer have this money in your retirement account which can continue to earn interest on a tax free basis until withdrawn, so while it may help you now, down the road in your retirement years you will likely wish that you had left that money in the account.

 

You are always better off to pay whatever bills you may have in any other manner possible rather than using retirement funds if you can possibly avoid it. You might consider trying to obtain a consolidation loan from a bank so that you could pay off all of your credit card debts and then just make one monthly payment to the bank to pay off your loan, and that interest rate should be considerably lower than what you are paying on your credit cards.

 

If this was helpful please press the Accept button.

 

Thank youCustomer/p>

 

 

Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
Merlo and 6 other Tax Specialists are ready to help you

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